Interest on the tax account is rising - take charge of your interest costs

It has probably not escaped anyone that interest rates have increased significantly in recent years. This means a need to rethink the management of the company's tax account. The interest is usually not visible on the tax account until it is time to pay it, which can be an unpleasant surprise.

The normal interest rate on the tax account was 1.25 percent or lower for over ten years (from 2011 until November 1st, 2022). Since then, it has been raised on several occasions and is 5 percent since August 2023.

Non-deductible

The interest on the tax account is also not deductible, which in practice means that the interest cost for a company is higher than the nominal interest rate. The current interest on the tax account corresponds to an effective interest cost of about 6.25 percent.

Payment timing

Companies with a calendar year as their fiscal year often pay parts of their income tax long after the end of the fiscal year. The Swedish Tax Agency usually waits until November/December with its decisions, and then there is a three-month payment period. This means that the final income tax for the fiscal year 2023 is often paid in March 2025.

A portion of the amount is paid continuously during the fiscal year, as preliminary tax. No interest is charged on tax paid in that way, but the difference between the final tax and the preliminary tax can lead to unnecessary interest costs.

Preliminary and final tax

The preliminary tax is based on the company's estimation of the year's result. The estimate is made at the beginning of the year and is almost always approved by the Swedish Tax Agency with no questions asked. Once such an estimate has been made, the Swedish Tax Agency may increase the amount in the coming years, but it is far from certain. The Swedish Tax Agency has no legal obligation to make such an increase if the company does not contact them.

When the final tax is then determined (for example in March 2025), interest starts to accrue on the remaining tax already on February 13, 2024, for individuals and companies with a calendar year as their fiscal year (for companies with a different fiscal year, different dates apply) The first SEK 30,000 in unpaid tax is interest-free until May 3 of the same year. The interest is also not recorded on the tax account until the decision is made - which makes it easy to miss.

Tips for reviewing the company's preliminary tax

This means that it may be wise for the company to review its preliminary tax. If there is a risk that the final tax will be significantly higher, it may be useful to submit a new preliminary declaration. The company can do this up to six months after the end of the fiscal year, for example in connection with a tax calculation or annual report. This way, the company can get a more accurate assessment and avoid paying unnecessary interest costs.

The interest on the tax account is therefore an important factor for entrepreneurs to keep an eye on, especially in the new interest rate environment that is likely to apply in the coming years.